Canada: Amendments Proposed to U.S. ITAR to Address Canadian Human Rights Law Concerns

The International Traffic in Arms Regulations ("the
ITAR") issued by the U.S. Government have been the subject of
significant controversy in Canada. They can result in Canadian
aerospace and defence companies excluding individuals born in
certain countries from work opportunities, and therefore raise
human rights law concerns. The U.S. has recently decided to address
these concerns by proposing amendments to the existing ITAR. The
following memorandum provides an overview of the ITAR, the
controversy surrounding their enforcement in Canada and the nature
of the proposed amendments. It is clear that the amendments
represent a significant improvement; however, the ITAR will
continue to impose strict requirements on Canadian companies.

International Traffic in Arms Regulations (ITAR)

The ITAR restrict the export of defence materials from the
United States. They are administered by the U.S. State Department,
Directorate of Defense Trade Controls. The ITAR require, among
other things, that individuals or corporations with access to U.S.
defence articles, data and services be registered and licensed by
the State Department. At minimum, this results in a lengthy
licensing process. In other instances, however, where the
nationality of an individual or corporation is on a proscribed list
of embargoed countries, access to U.S. defence materials will not
be granted. There are approximately 25 countries on this list.
Failure to comply with these regulations results in the imposition
of costly fines by the U.S. State Department. In the past, these
fines have been imposed on U.S. as well as on foreign
corporations.

Impact in Canada

Given that North American defence production is highly
integrated, the ITAR have had a significant impact on Canadian
companies. Despite periodic exemptions having been put in place for
Canada for some aspects, they do not cover individuals from
proscribed countries. Many Canadian aerospace and defence companies
rely on U.S. materials or contracts for the majority of their
business. If they fail to comply with the regulations and maintain
these contracts, they risk serious financial consequences.

Until now, implemention of the ITAR restrictions may have caused
Canadian companies to violate the human rights of current and
prospective employees. The Canadian Charter of Rights of
Freedoms and provincial human rights codes prohibit
discrimination on the basis of nationality. Since the ITAR require
that foreign nationals from proscribed countries be denied access
to defence materials, this becomes problematic for defence
companies employing immigrants, permanent residents, or dual
citizens. Even those individuals who were born outside Canada in
the proscribed countries and subsequently became naturalized
citizens are considered non-Canadian for the purposes of the ITAR
and have been denied access to defence materials by the U.S.
Government. Canadian aerospace and defence companies have been
forced to adopt measures to prevent non-citizens or dual citizens
from coming into contact with U.S. defence materials in order to
achieve ITAR compliance. This has resulted in instances where
employees have been laid off or excluded from important projects.
Some companies went so far as to create job advertisements
indicating that applicants must be able to meet ITAR requirements,
resulting in discrimination in hiring practices against individuals
from particular countries.

Not surprisingly, these measures have come before various
provincial human rights bodies. In one prominent case, General
Motors Canada Limited ("GMCL") sent landed immigrant
employees home with pay. This was done in response to fines
amounting to $20 million (USD) being imposed by the U.S. State
Department for violating the ITAR while producing military vehicles
at its plant in London, Ontario. The employees claimed they were
discriminated against on the basis of their citizenship and accused
GMCL of failing to apply for security clearances on their behalf. A
settlement was reached between GMCL and the employees allowing them
to return to work under new access to information restrictions and
to receive monetary compensation.

Similarly, a complaint was brought before the Quebec Human
Rights and Youth Rights Commission against Bell Helicopter. A
Haitian-born Canadian alleged that having successfully secured an
internship with the company, he was later disqualified from the
position on notifying the employer of his place of birth. Bell
Helicopter agreed to a settlement. The Commission conducted an
analysis of the ITAR rules indicating that they were inconsistent
with the Québec Charter of Human Rights and
Freedoms by infringing the right to equality without
discrimination based on ethnic or national origin.

Proposed amendments

The amendments proposed by the United States on August 11, 2010
respond directly to human rights issues stating that this has
"become a focus of contention between the U.S. and allies and
friends without a commensurate gain in national security."
Should these amendments be put in place, no approval will be
required from the U.S. State Department to transfer defence
materials within a foreign business entity that is an approved
end-user or consignee of these items. This encompasses "the
transfer to dual nationals or third-country nationals who are bona
fide, regular employees, directly employed by the foreign business
entity." The transfer of these materials must also take place
within the physical territory where the end-user is located or the
consignee operates.

These changes would allow approved Canadian aerospace and defence
companies to transfer defence materials to foreign-origin employees
from proscribed countries without a license, provided they meet
additional requirements. The approved end-user must adhere to the
following conditions:

ensure that a security clearance is approved by the Government
of Canada; and

develop a process to screen employees that includes the
execution of a Non-Disclosure Agreement providing that employees
will not transfer any information to persons or entities unless
specifically authorized by the consignee or end-user.

In addition, employees from the listed countries must be screened
for "substantive contacts" such as recent travel to or
continuing contact with agents of proscribed countries. The
employer must maintain records of all screening performed.

Conclusion

The United States' ITAR have had a significant impact on
Canadian aerospace and defence companies. Compliance does, however,
pose human rights challenges when dealing with employees who are
non-citizens and dual nationals. The proposed amendments would
represent a positive new development. Companies that are approved
end-users or consignees of these materials will no longer require a
license, even when non-citizens or dual nationals will be part of
the defence material transfers. Nevertheless, strict security
screening requirements continue to impose obligations on Canadian
companies. Achieving the appropriate balance between compliance
with the ITAR and Canadian human rights law will be an ongoing
challenge.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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